Bonds issued by a unit of China National Chemical Corp. surged on speculation that a planned merger with Sinochem Group would help bolster the manufacturer’s balance sheet.

ChemChina subsidiary Bluestar Finance Holdings Ltd.’s notes due in 2020 jumped by 0.51 cent on the dollar, the biggest increase in four months, to 104.4 cents as of 4:35 p.m. in Hong Kong, according to prices compiled by Bloomberg. The increase came after a person familiar with the matter said China is planning to merge Sinochem with ChemChina into a combined company with more than $100 billion in assets.

State-owned ChemChina, the nation’s largest chemical firm, posted a net loss of 828.3 million yuan ($123 million) in 2015, while its total assets were worth 372.5 billion yuan. It has been on a buying spree in recent years and is currently seeking regulatory approvals to proceed with an agreed acquisition of Swiss seed and agrochemical producer Syngenta AG. That follow a series of purchases including France’s Adisseo Group, Elkem in Norway, Pirelli in Italy and KraussMaffei in Germany.

“Given that Sinochem has a stronger balance sheet than ChemChina, a possible merger will be positive for ChemChina, especially the bonds issued by its main subsidiary Bluestar,” He Xuanlai, a Singapore-based credit analyst at Commerzbank AG, wrote in a note. “A possible merger will help to repair its balance sheet and lower debt leverage ratios.”

The mega-merger plan comes as Chinese policy makers continue their overhaul of state-owned enterprises. It would change the landscape of China’s chemicals industry and add to the wave of consolidations the government has pushed under President Xi Jinping.

“The potential merger between Sinochem and ChemChina is a part of China’s SOE reform," said Patrick Liu, co-head of Asia debt financing group at UBS Group AG in Hong Kong. "Sinochem, which has a relatively better credit profile, will help the creditworthiness of ChemChina. We may see more m&a deals like this to come.”